34 Union Street - a really nice place to call home

An argument for simpler financial reporting – AHB September 2020

I have occupied an apartment in our building at 34 Union St since February 2011. Like every owner, I had purchased my lot in a strata building knowing there was an annual levy to cover the costs associated with cleaning, services, management etc. We all settled down to a pleasant life and our regular six monthly levy.

In a remarkably short time problems arose, and with more investigation came more unpleasant findings. Many of the faults would have happened unnoticed particularly to non-resident owners. A fairly dramatic escalation came when the building was found in breach of fire regulations and the expensive installation of a sprinkler system was required. The special levy of $22,000 per lot was the result.

The increase of problems, how they were to be fixed and the limited opportunity for legal action required unusual effort by your manager and committee. A separate "Maintenance Fund" was started with an annual levy of $356 and eventually a legal victory at the VCAT provided us with $2.45 million.

I attended each day our case was scheduled for a hearing at the VCAT and can describe one particularly infuriating occasion. We're all poised to present our argument when the other side asks for an adjournment because an expert they intended to use was in New Zealand. Not an expert who was ready to present his evidence, but one they hoped to hire when he returned! They got their postponement and off we went to wait another month or so.

We are now in 2021 and it would be quite reasonable for an owner to reflect on where we are at this time. We had a levy to cover all routine maintenance, and the additional amounts of $1.232 million from the sprinkler levy to fix that specific problem and $2.45 million from VCAT, totalling $3.682 million.

With the same reasonableness, they would like to see what has been paid for out of that sum. Was the maintenance component of the original levy sufficient for “normal” maintenance costs and how much of the $3.68 million is left for remaining major works?

If we look at the financial statements presented to the 2021 AGM we find our net assets are about $33,998 – sounds like there’s not much left of the $3.68 million – but look closer. There’s one line that says “Total Assets $903,204” and that sounds encouraging, but just below it has “Total Liabilities $869,206”.

When we look closer we find among our "Assets" an investment of $878,177 and in our "Liabilities" $832,625 described as "Legal proceeds in advance". How can that be a liability? Surely the liability is better described as "Committed restoration works"?

If we pursue our look at the “Financial reports” there are more puzzles. The planned expenditure budgeted in 2021 for the items labeled “Maintenance & Repairs” and “Essential Services & Maintenance Agreements” total $61,130. We have to assume that the “Maintenance Levy” that totals a little less than $20,000 annually is purely a supplement to cover the combination of “normal” maintenance and the unexpected.

Our manager and committee should think of the less financially literate who still have a need and probably a right to a clear presentation of the financial position of their investment.